Observations focused on the problems of an underdeveloped country, Venezuela, with some serendipity about the world (orchids, techs, science, investments, politics) at large. A famous Venezuelan, Juan Pablo Perez Alfonzo, referred to oil as the devil's excrement. For countries, easy wealth appears indeed to be the sure path to failure. Venezuela might be a clear example of that.

Archive for January, 2010

There is always something happening in Venezuela such that it is almost impossible to keep up with the news or report it all. From the lights going out at the end of both the last two games of the Venezuelan Championship (which Chavez has already said was sabotage), to Chavez calling day after day for a recall vote and the opposition ignores him, to the fact that Chavez’ Russian and Chinese buddies did not bid for the Carabobo heavy oil field, proving that for these New Age capitalists, the conditions were not attractive enough, i.e. profits did not look very good to bid for them. And how about Lula’s advisor Marco Aurelio Garcia saying that Venezuela’s electric network is quite deteriorated and Brazil would send advisors to help. Doesn’t he know this is not true and it’s all due to El Niño? El Niño Chavez, of course…

But as usual, something is happening behind the headlines in the economic front that needs to be reported:

1) Magical dual accounting

Only 21 days after the Government imposed a dual official exchange rate system, the Central Bank finally issued rules on how financial institutions will account for their assets in foreign currency. Think about it, usually you have an official rate and a parallel rate, all your assets in foreign currency, whether they are cash, bonds or even property, you account for at the official rate of exchange, i.e. until January 8th. you kept everything in foreign currency in your balance sheet at Bs. 2.15 per US$.

But now, we have a dual system and when the Government devalued it did not say how it should be done. People expected one rate or the other, but the Robolutionary Government in all its creativity and magical realism decided to have dual accounting rules, which not only make little sense, but should allow for some very creatve accounting.

So far the rules apply only to financial institutions, but we suspect they will be the same for all companies, financial or not:

i) All assets held in foreign currency will be accounted for at Bs. 2.6 per US$, except Venezuelan Sovereign bonds or other bonds issued by public entities, which will be accounted for at Bs. 4.3 per US$.

ii) The exception to the second part will be the so called TICC’s, inflation adjusted bonds which are denominated in US$, but whose capital and interest is paid in Bolivars at the official rate of exchange. The Government decided to this in order to save itself lots of money when making payment on these bonds which were supposed to “protect” you precisely from a devaluation. Thus, all companies that have no access to dollars at Bs. 2.6 per $, will have to value their bonds at this rate.

And you can bet (we don’t know yet) that dividends for those same companies will be repatraited at the higher rae of Bs. 4.3 per $ (i.e. they will give you fewer dollars). Thus, the Government as we say in Spanish “se pago y se dio el vuelto” (The Government paid and made change for itself at the same time)

But in an economy full of distortions, here is a new one, you can do a lot of creative accounting with these rules. Let me give you an example: Suppose your company lost money in 2010, say 1.5 million Bolivars, but you have one million dollars in an account abroad in cash. That million dollars is accounted for at Bs. 2.6 per dollar. Well, two days before the end of the year you buy two million dollars worth of Venezuela or PDVSA bonds and voila, you just made Bs. 1.7 million in profit by doing that since the bonds are valued at Bs. 4.3 per $.

Or suppose you are a bank and you made what Chavez would think is “too much” (i.e. a profit). Since banks have a nice portfolio of Venezuelan bonds, they can sell it and lose a bundle to “erase” some of the profits. (They go from bons at Bs. 4.3 per dollar to cash at Bs. 2.6 per dollar, weird, no?)

It’s magical accounting, courtesy of the revolution. In the end another distorsion…

2) And Giordani’s magical modelling

And Minister Giordani said that he expected GDP to gro wby 3 to 4% in 2010. Scary stuff, no? In 2009, when oil prices were low, he said Venezuelan GDP would grow by 4% in 2009, an error of some 170% given that the economy shrank by 2.9%. Well, if he is using the same spredsheet or model, then we could be shrinking by even a larger amount. Even worse, he is now Minister of both Planning and Finance!!!

3) More brokers intervened, more to come

Last week, three more brokers were intervened for losing their equity. Thus despite the assurances that the financial crisis was over, we have had three banks and four brokers intervened so far in 2010. I understand that more brokers are being examined with a magnifying glass and some may roll in the next few weeks. Additionally, I am still waiting for the bank Chavez said was in bad shape to fall.

And the guy in charge of intervening U21 said that there are no assets there to compensate anyone, but somehow nobody complains. Who had money there?

Here is a translation of the press release by Amnesty International asking the Venezuelan Government to respect the rights of all Venezuelans to meet and express themselves as well as calling for the investigation of who was responsible for the dead and injured during the protests:

Following recent acts of violence occurring during the student protests in different cities for and against the waiver of RCTV International, Amnesty International called on the authorities to guarantee the right of assembly and expression for all people , and to ensure that the death of students Yosinio Carrillo Torres, 16, and Marcos Rosales, and the injuries suffered by dozens of other people, including demonstrators and members of law enforcement, are investigated and those responsible brought to justice.

The authorities must unequivocally condemn these serious abuses immediately and ensure that the police intervene only to protect the integrity and life of all persons seeking to exercise their legitimate right to meeting.

The state has a duty to maintain order always making sure that security forces use force, including the use of firearms, only when it is strictly necessary and in accordance with a principle of proportionality, without infringing in any torture or punishment cruel, inhuman or degrading treatment, such as specified by international standards of human rights and the Constitution of the Bolivarian Republic of Venezuela.

“The right to assembly is a fundamental right, but not a right to violent protest. Demonstrators and their leaders must ensure that no use of violence, “specified Amnesty International.

What happened during the the last few days is not an isolated event. In the past 13 months when protests have increased markedly in Venezuela about 600 protesters were injured, at least 14 with gunshot wounds, and 9 protesters are dead. According to reports, most were killed by security forces, armed groups of civilians who are government supporters who claim their actions or by unidentified civilians.

Amnesty International is extremely concerned by the deterioration of freedom of expression in the Bolivarian Republic of Venezuela. All rights, including the right to freedom of expression and assembly must be respected and society must realize that they were respected.

The non-renewal or suspension of licenses of television and radio, as happened in 2007 with RCTV and last year when it revoked the license to 34 radio stations, together with the recent suspension of four cable television channels, including RCTV Internacional, shows disrespect by the authorities to the legitimate work of the media, especially when these are known for their editorial criticism of the government.

“While the media must abide by the provisions of the law, closing a media outlet should be a last resort and a measure that should only be implemented after being given all the guarantees of due process, including the right to present a defense and appeal, “said Amnesty International.

If the Venezuelan government is committed to the values of the rule of law it must promote, protect and respect the right to freedom of expression and assembly and celebrate the importance and positive contribution in a state of law and transparency play criticism, Amnesty says International.

A Venezuela without Esteban is difficult to imagine, but all the scientists agree in pointing out that the day when the President will leave the government is nearer everyday and they have made a documentary for the History Channel which will relate how Venezuela will be when the Head of State is no longer…

…FIRST DAY WITHOUT ESTEBAN: People can’t really believe it and they begin to live in a state of confusión. Pro-former government armed groups destroy all that’s left of the country (which fortunately was very Little)…

Some who are already completely crazy continue applauding in Miraflores and screaming UH AH…Martha Colomina and Miguel Angel Rodriguez take the plaza Bolivar with a group of motorcyclists and surround Lina Ron…Venevision declares itself furiously anti-Chavez.

…FIRST MONTH WITHOUT ESTEBAN: Some people have not reacted yet, thinking that he will return at any moment. People stop buying dollars like crazy. Most of the militant members of PSUV say that they never imagined that the government did all those atrocities that were beginning to be uncovered and that they didn’t know…Humanitarian aid arrives in the country…

…SIX MONTHS WITHOUT ESTEBAN: …Nicaragua and Cuba claim their monthly allowances before the Court of The Have. The first investors arrive in the country. The Chavista deputies begin to notice that the laws they had approved are really antidemocratic because now they are being applied to them, and they contribute in the effort to change them. All the political prisoners who had been judged arbitrarily or detained without trial are now free. Esteban continues living in Cuba with the excuse that without him “in Venezuela no one lives” and tries singing in the Tropicana.

…TEN YEARS WITHOUT ESTEBAN:…The first signs of economic reactivation begin to appear. There are now foreign investors with more confidence. Venezuela’s international image begins to improve and after two periods of political alternability without trouble, the people begin to believe in the solidity of democracy. Venezuelans who left the country during the government of Esteban begin to return “en masse” attracted by this good international image and by the reform of social security which guarantees a decent health system for all citizens. Sugar can again be found in the supermarkets.

… …TWENTY YEARS WITHOUT ESTEBAN:…Fidel Castro dies officially and Raul asks Esteban to leave Cuba. Esteban returns to the country. Jose Vicente Rangel denounces in his Sunday program the corruption of his government and gives the names of those who bécame rich except one. The ex-president goes for an audition in Venevision to lead Sabado Sensacional, which to this day is still without a Master of Ceremonies, but the channel portrays him negatively (¿)(le pinta una del tamaño de la colina) and denounces the atrocities of his government and the repugnant complicity of some people. Esteban dedicates himself to the family estates in Barinas, in the middle of constant protests from his workers for better salaries and capitalist exploitation.

…ONE HUNDRED YEARS WITHOUT ESTEBAN:…The end of the Venezuelan 20th century and the beginning of the 21st is now only a bad memory. The period is studied as an example of what should not be done with a country. Many historians say that Venezuela entered the 21st century when Esteban lost his power. People are surprised to see the videos of how he ruled the country, how he treated the citizens and his own ministers. Many believe that it is a joke from the oldest comic show of Venezuelan television, Radio Rochela, which is again on the air in open telepathic signal.

The ex-president goes for an audition in Venevision to lead Sabado Sensacional, which to this day is still without a Master of Ceremonies, but the channel portrays him negatively (¿)(le pinta una del tamaño de la colina) and denounces the atrocities of his government and the repugnant complicity of some people. Esteban dedicates himself to the family estates in Barinas, in the middle of constant protests from his workers for better salaries and capitalist exploitation.

Today Tal Cual published it’s usual Friday “Serious Humor” column by Laureano Marquez, which was entitled “Venezuela Sin Esteban. Tonight the Ministry of Information and Communication announced that it would ask the Prosecutor to open an investigation and sanction the newspaper for the Editorial.

In a clear sign that Chavez and his cronies are really getting edgy and thin skinned. The Ministry said that:

“The newspaper committed a flagrant violation of the Constitution and the laws, publishing a text which is and aggression and a disrespect to Venezuela’s democracy”

“The text is a flagrant invitation to not recognize Constitutional order and an an attempt to incite violence as a way to get rid of the Government by means different than elections…it is an invitation to a coup plan, genocide and terrorist, which is masked with the use of humor. Nevertheless it was published in the front page of this newspaper, in a place devoted to Editorials. All of this is added to the permanent criminalization that the coupster media executes against the security agencies of the State, as a strategy to incite violence and incite war”

Over the years I have translated many articles, but I simply find it next to impossible to translate this one (If anyone tries I will publish it). Thus, for those that speak Spanish I have placed it here, not only for your enjoyment, but also because I am sure that at some point the Prosecutor’s office or the corresponding Judge will order Tal Cual to remove the article from it’s web page.

For those that like to argue that RCTV was shut down because the law said so, let me remind you that the company went to the Supreme Court in 2007 to contest the shutdown of its air wave concession and has yet to hear from any of the suits and injunctions that have been brought to in fron of the Highest Court of the land since then. Some “Justice”, no?

Which brings us to the curent case, in which PSF’s and fanatics also parrot all the stuff about the “Law” and “legality” in a country in which this is quite rare, if it exists at all.

And yesterday RCTV Internacional’s lawyers went to the Supreme Court once again to appeal the decision by CONATEL, not that they necessarily expect an answer, given the recent history of the biased Supreme Court (controlled?)

The legal argument is quite simple if you are willing to take the time, even my favorite PSF’s and trolls should be able to understand them, if they bother to read them, which I doubt:

First of all, the “Law” did not include any provisions for cable and satellite operators. These are regulations created “a posteriori” by the regulator that defined what is a national broadcaster or not. As you know, they said that if a company produces more than 70% of its content, it is consider “National” and has to carry Chávez long and boring speeches whenever he feels he has to tells us something, however inmaterial.

But RCTV Internacional was shut down on Jan. 23d. based on Conatel’s evaluation on the 90 days prior to the shut down, despite the fact that since Dec. 22nd. RCTV Internacional has broadcast less than the 70% of its programming made in Venezuela, in order to be considered an international cable or satellite channel and thus not be required (by LAW!) to broadcast Chávez’ “Cadenas”.

In fact, despite the claim by the Minister of Telecommunications that RCTV has not gone to the regulator, on Jan. 13th. RCTV laywers handed in 5 boxes of documentation showing that RCTV has adjusted its programming, so as not to be considered a national broadcaster.

But Chavismo is not known for its respect of its own Constitution or the Law, just for the fanatical parroting of the official line (As given by the Dictator) without any thought or interpretation.

The question is whether we will ever hear or not from the Supreme Court. Call me skeptical, but I doubt it, not as long as Chávez controls the destinty of all of its members.

People who study countries that suffer from an abundance of resources, whether you call it The Dutch Disease, The Devil’s Excrement or the curse of abundant resources, spend a lot of time trying to compare countries which sometimes have many social, cultural or even religious differences that lead some to question whether a comparison is appropriate. A couple of Professors at the London School of Economics have done a very ingenious study in Brazil, which appears to show that The Devil’s Excrement is at work at a more micro level in a single country, where cultural and social differences are limited.

What they did was go to Brazil where municipalities apparently benefit directly from their oil wealth (I was not aware of this), creating municipalities with different levels of oil income, but despite these they do not show any significant differences with other municipal characteristics.

What is available on-line does not talk much about methodology, but the authors conclude that oil production has no impact on non-oil activities and more remarkably, when onshore oil contributes to the economy of the municipality, the manufacturing sector shrinks and the service sector expands in that municipality (Sound Familiar?)

While the authors do find that richer municipalities spend more and build more infrastructure, when they look at actual quality of life increases, there are few. For example, there are minimal increases in household income, but this has nothing to do with increased population, for example.

However, the study finds where some of this money may have gone, such as the homes of municipal worker houses increasing in size, more news about corruption cases from the municipality, a higher number of Federal poliec actions in the area and anecdotal cases of corruption involving the Mayors of oil rich areas.

The authors also find that other sources of revenues do have a larger impact and less “missing money”.The only thing I was not clear about is how municipalities with more infrastructure thanks to oil don’t ahev a higher standard of living, but overall I found the paper and many of the references aboyt Venezuela’s disease, quite interesting. I hope you do too.

Yesterday, during the introduction of Apple’s new product the Ipad, it appeared as if the company joined the Evil Empire as millions saw the demo of the iPad showing the New York Times page and right there on the middle right side, the headline:

“Anti-Chavez channel is taken down”

If paranoid Hugo saw that picture, I am sure he would reach the same conclusion…

Of course, those on the other side feel it was the other way around, the good guys at Apple are actually on our side and wanted to show it!!!

This week the Venezuelan Nazional Guard unveiled a new weapon in its fight to injure and hurt protesting students. As can bee seen in the picture below, Guards showed up yesterday in at least two cities of the country with a chain with hooks at the end, meant to entangle and injure the students. Such hooks are surely to tear muscle and skin and break a few bones in the process. The guards did not use their new weapons in their debut day, perhaps to their chagrin.

Respect for the “people” and their rights have truly reached a new low under Hugo Chávez

For a man intent into taking Venezuelan into the Dark Ages, it was a remarkable admission that modernity can be a threat to Hugo Chavez and his fake revolution. As students used the Internet and its tools like Twitter as wel as other modern tools like SMS messaging to mobilize and communicate strategy instantly, Hugo Chavez made his second attack on the Internet in a single week, calling the rumors and use of this technology “terrorism”:

A week ago Chavez had said that his supporters had to watch out for the Internet and tonight he came on TV wearing a suit, rather than his usual red garb and began reading messages (which were too long to be from Twitter), calling it terrorism (right at the end, minute 3:50 or so)

Can Chavez really expect that his trusted friend and confidant resigns as Vice-President and Minister of Defense for “personal reasons” (and his wife as Minister of the Environment) and there will be no rumors?

Chavez repeated again his wish, which the opposition has paid absolutely no attention to, that to get rid of him his opponents had to call for a recall referendum, a tool that would not only be distracting, but quite difficult to achieve as the recall votes would have to exceed the number of votes he got in his Presidential reelection in 2006. (Chavez has made such a call four times in the last three weeks and seems frustrated by the lack of even a response) This would be difficult given the resources of the Government as well as the difficulty of mobilizing the voters at this time. The opposition wants to concentrate in the legislative elections in September, letting Chavez ride the harvest of his own incompetence until 2012 when his term expires.

The truth is that it is the Government has the weapons in this fight and is the one that has sponsored the violence against the students, who in turn have managed to use peaceful means to stop the violence like today at Government’s TV station VTV. But it was the Tupamaros who caused most of the violence in Merida, aided by the local law enforcement agencies. And it was Chavez who was seen mingling with Lina Ron in his Saturday rally, a woman that has led armed attacks on marches and was imprisoned in January 2009 for leading a violent attack against Globovision. Chavez can’t attack the opposition on the protests as the students have led the protests and do not respond to the political leaders of the opposition parties.

In the end it is ironic how Chavez evokes the fundamentalism of his Iranians buddies, who have also referred to the Internet and Twitter as terrorists, which is mocked in this hilarious cartoon below:

But in the end, besides feeling the threat from a weapon Chavez does not control or understand totally, maybe his key problem is that he could never make adequate use of it. For a man accustomed to uninterrupted speeches of six to eight hours, it must be simply impossible to even consider the possibility of communicating anything in 140 characters.

Protests continued today in Venezuela as the student movement took a life of its own, staging demonstrations in different parts of the country and trying to fight repression with pacifism. The results were not pretty, as two students were killed in the student scity of Merida in the Venezuelan Andes, as both sides accused each other of the deaths and the violence. But it was clear that the para-military groups in Merida, where the worst violence has taken place, were protected by the authorities. I refuse to label the two deaths students as being part of either side, they were both Venezuelans.

Meanwhile the pro-Chavze Governor of Merida State said that things were calm today, but the protest and the fighting continued as the urban guerrilla Tupamaros took the violence into residential areas where dozens of cars were burnt.

In Caracas, it was a whole different story, as students went to the Government’s TV station to protest and despite the presence of pro-Chavez violent groups, things were quiet as neighbors from the surrounding buildings came down banging pots to aid the students forcing Lina Ron and her thugs to stay back. The students were actually met by the officials of RCTV, but it is not clear anybody but Globovision was watching, such is the state of freedom of speech in Venezuela.

Everywhere where there are universities, students protested today, as the movement was incensed by the deaths yesterday. The Government tried to blame the protests on the opposition leadership, but the truth is that these are very spontaneous protests with no clear leadership other than a fiery student movement, tired of the Government’s repression.

But even the policemen looked tired (not so the National Guard) as they also have to endure the water and electricity shortages and the daily fight with uncontrollable crime.

Caracas is set to start rationing of electricity again as Chavez keeps trying to fight an external fight, which is not the right battlefront, and avoid dealing with the internal deterioration of the country. Venezuela has yet to feel the effects of the recent devaluation, commerce is still at a standstill because of the uncertainty in rules and while Chavez accelerates the signing of oil deals, like today’s with Italy’s ENI, the truth is that none of these will pan out, or help him much, until at least four years from now.

But rumors, protests and the reality of shortages continue to plague a Government that is used to throwing money to solve problems, but with oil down, the parallel funds drawn down and an incompetent military in charge of a civilian administration, there seemed to be no quick solutions and too many problems to solve for the beleaguered Chavez administration.

Even worse, those trying to solve the problems are the same recycled officials that mismanaged Venezuela in the last eleven years, but were given a reprieve by high oil prices in 2006-2008. Right now, the sense you get is that of a country with little direction and few quick fixes even before inflation doubles in the upcoming months.

Not a pretty picture, but let Hugo enjoy be blamed for the results of his destruction and irresponsibility.